Could “open banking” soon become a global phenomenon? It is a question banks and tech companies are asking as the UK kicks off its open banking programme as part of a Europe-wide reform and Hong Kong begins exploring the idea.
Understanding the potential impact of open banking is relatively simple because most people use similar technology on a regular basis.
Take, for example, Google Flights, a website in which users type in a departing city, a destination and a date for a trip and are presented with dozens of specific flights on different airlines at different prices. Google has been able to access the data from hundreds of different airlines and neatly present the information without the traveller having to visit each and every airline website.
Open banking is much the same but, instead of airlines data, online companies would be accessing a multitude of financial data and products currently held deep in the vaults of the banks.
The new UK rules would allow a bank customer with several different accounts to use a single mobile app to view and control her balances across the different accounts. The customer could also make a payment directly to a friend or a company over a social media platform or a retailer’s website using a bank’s payment services.
It sounds great, from a consumer’s point of view. But in the end its impact looks likely to vary greatly between different financial centres. It will all come down to how much each regulator pushes banks to open up.
Naturally, many banks are expected to make available only the data that regulators require of them. In most cases, the more data the banks are able to keep in the vault, the more they can keep tech companies from moving into the financial services market.
The process also requires heavy investments and the revamping of bank systems. On top of that, many banks have raised concerns about the risk of fraud and cyber crime if access to their customers’ financial information is opened up too far.
“Banks will have been watching the development of open APIs in the west with interest but also with some trepidation,” said Fergus Gordon, managing director for greater China banking at Accenture, referring to ‘application programming interfaces’, the mechanism that allows other companies to plug into bank systems and access specific information. “Creating a robust, secure open API architecture is a technical headache and most banks have complex legacy systems that create plenty of IT workload already.”
On Friday, Hong Kong asked banks and tech companies to weigh in on what it calls the “open API framework”, its first attempt at open banking.
But experts don’t expect regulators to force Hong Kong banks to open up any time soon.
“We don’t envisage a scenario where Hong Kong moves towards the mandatory open banking regime of the UK/ Europe,” says James Lloyd, Asia-Pacific fintech leader at EY. “Australia is the only country in Asia-Pacific likely to implement something comparable, at least in the near-term.”
This could put a damper on the kinds of products on offer in the Asian financial hub. Imagine a flight comparison website where only three airlines had signed up to provide flight data – not much of a choice.
The UK’s framework – part of a wider EU directive – is on the other end of the spectrum: a mandatory regime, where banks are required to open up data and services to any third parties that have the customers’ permission and have been approved by regulators. That means that there will be a wealth of data and products that eventually become available for tech startups to use.
In Hong Kong, the pressure to embrace similar open banking reforms is only likely to increase from the city’s small but growing cohort of fintech startups, such as Quantifeed, the digital wealth management platform; CompareAsia, the financial price comparison site; Bitspark, the blockchain payments provider; TNG, the digital wallet; and ANX International, the blockchain exchange company.